First Lessons to Teach Kids about Credit

February 5th, 2018 | Author:

[Y]ou hear all of the time about teaching lessons to kids on money, but not as much specifically on credit. However, credit is just as much a fact of life in today’s society as other financial tools, and kids should start learning early about it.

What Credit Is

The first lesson for kids is to teach them the meaning of credit. Kids see you whip out a credit card, but to them it is the same as cash. You’re paying for something with a means of payment. They don’t understand that you’re “borrowing” the money.

To teach younger kids or anyone that lesson, you can say “yes” if they ask you to pay for something for them and they promise to pay you back later. Just tell them you are giving them credit, and you will expect payment with their next babysitting job or allowance. Of course, you probably won’t charge them interest, but they will begin to understand what credit really means.

How Expensive Credit Is

As kids get older, they need to learn the real cost of credit (some adults still need to understand that lesson). When you’re thinking about buying something on credit, have your kid do the math for how much it will cost if you pay it off within 30 days versus the cost if you add in interest for 6 months or a year.

You don’t have to get too complicated with the math; just add in simple interest instead of compounding it with younger kids. The goal is to help them see how much more expensive the “buy now, pay later” theory is over saving up to buy what you need.

Teaching kids to handle credit responsibly as adults begins with helping them understand it isn’t free money. Once they recognize the difference between credit and cash, you will be well on your way to helping them become financially independent as adults.

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